The end of a lending giant

LOS ANGELES - Angelo Mozilo liked to boast that his company had plenty of cash and know-how to survive the worst roller-coaster housing cycles.

But the latest slump and a severe credit crisis dealt a crushing blow to Countrywide Financial Corp., the nation's largest mortgage lender, leading to huge losses, rumors that the company would file for bankruptcy protection, and, finally, yesterday's rescue buyout by Bank of America Corp.

The $4.1 billion purchase of Countrywide should spare it from bankruptcy, but the deal still spells the end of the giant company that had seemed well-equipped until just a few months ago to weather the nation's falling housing fortunes that had driven scores of its rivals out of business.

Even after posting its first quarterly loss in 25 years, Countrywide proclaimed in October that it had ample capital and access to cash to ultimately emerge a stronger player in the mortgage industry.

It didn't work out that way.

"We've gone through this sort of nonsense where the [company] says everything is wonderful and dandy, and then, three months later, they're in dire trouble," said Sean Egan, managing director of independent ratings firm Egan-Jones Ratings Co. in Philadelphia. "Enron said it. WorldCom said it."

Even so, Mozilo, Countrywide's chief executive officer, should walk away with a package, including his retirement pay and stock holdings, of nearly $66 million. He has been selling his shares of Countrywide's stock since last year, but he still has shares worth about $5.8 million.

His retirement benefits are worth $24 million, and his cash severance should be about $36 million, estimates consultant David Wise of human resources company Hay Group.

Seeing Countrywide fade into oblivion was not what Mozilo envisioned when he and David Loeb launched the company in a New York storefront in 1969. They later relocated to the Los Angeles suburb of Calabasas.

During its four decades, Countrywide grew exponentially in pursuit of its founders' vision of a national mortgage company. It flourished as home buyers began seeking alternatives to traditional saving-and-loan financing in the 1980s.

Like other mortgage lenders, Countrywide pushed nontraditional loans and subprime loans to people with shaky credit histories, since those products were favored by Wall Street banks because of their high yields.

During the last quarter of 2005, the peak of the housing boom, Countrywide's earnings soared 73 percent to $638.9 million and its revenue hit $2.59 billion.

By 2006, Countrywide had grown into the biggest mortgage lender in the nation.

But the good times soon began to unravel, as the housing market tanked in 2007, home prices plummeted, and mortgage defaults began to mount, particularly among subprime borrowers who took on high-interest loans and others with risky adjustable-rate mortgage loans that began resetting to sharply higher monthly payments.

Things worsened last summer when a liquidity crisis swept through financial markets after investors' demand for mortgage-backed securities collapsed amid rising defaults.

In September, the company announced thousands of layoffs and all but stopped making subprime loans.

In October, Countrywide disclosed a third-quarter loss of $1.2 billion as it was forced to set aside millions in loan-loss provisions and write-downs.

Meanwhile, an increasing number of Countrywide borrowers fell behind on payments or slipped into foreclosure. The number of new loans plummeted.

On Tuesday, Egan's Philadelphia ratings firm suggested that Countrywide was days away from faltering unless it got an infusion of $4 billion.

The lifeline came from Bank of America.